Five key investor questions on China answered

chinese umbrellas

Amid the Covid-19 pandemic, our team considers the relative prospects for China’s economic recovery and stock market resurgence.

What the pandemic has highlighted is large differences in state capacity to manage this crisis.

Will China experience a ‘V-shaped’ economic recovery?

We are still at the beginning of an enormous economic and social repair job. Governments worldwide are walking a tightrope between opening their economies quickly enough to support expansion, but not so quickly as to invite fresh waves of infections. But what the pandemic has highlighted is large differences in state capacity to manage this crisis by limiting its scale, before starting recovery. China was first in and first out (FIFO) of this crisis in terms of economic recovery, so it has a shot at a true ‘V-shaped’ recovery – where the economy returns to its pre-Covid-19 path. Indeed, China’s second-quarter GDP numbers were very strong, with activity returning to levels reached in the fourth quarter last year. However, the latest outbreak in Beijing suggests progress may proceed in ‘fits and starts’, with the re-imposition of containment measures depressing consumption and confidence. Overall, we expect a cautious approach to spending by households, which would weigh on China’s recovery and reduce the chances of a full recovery. In addition, amplification of US-China tensions could damage China’s long-run growth – pointing to a recovery more akin to a reverse ‘J’ than a ‘V’.

View Full Article – published by Aberdeen Standard Investments on 30th July 2020